HALYK GROUP FINANCIAL RESULTS PRESENTATION 9M & 3Q 2019 (Moodys - - PowerPoint PPT Presentation

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HALYK GROUP FINANCIAL RESULTS PRESENTATION 9M & 3Q 2019

(Moody’s – Ba1 / Fitch – BB / S&P – BB) November 18, 2019

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Disclaimer

Certain information contained in this presentation may include forward-looking statements. Such forward-looking statements are not guarantees of future performance. These statements are based

• n management’s current expectations or beliefs as of the date of this presentation and are subject

to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The Bank disclaims any intention or obligation to publicly update or revise any forward-looking statements. The alternative performance measures (“APMs”) disclosed in this presentation are unaudited supplementary measures of the Halyk Group’s performance and liquidity that are not required by,

• r presented in accordance with, IFRS. These measures are not defined by IFRS and the Halyk

Group’s use and definition of these metrics may not be comparable to similarly titled APMs used by

• ther companies in the financial industry due to differences in accounting policies or differences in

the calculation methodology. These APMs have limitations and should not be considered in isolation, or as substitutes for financial information as reported under IFRS. Accordingly, undue reliance should not be placed on the APMs presented in this presentation. The Halyk Group has included these measures because it believes that they enhance an investor’s understanding of the Halyk Group’s financial performance. The Halyk Group also believes that these APMs are commonly used by investors in comparing the performance of businesses. The management of the Halyk Group uses these measures to monitor and analyse Halyk Group’s performance. Basis of calculation:

• all figures in this presentation are based on IFRS audited financial statements or

financial statements reviewed by auditors, unless stated otherwise;

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Speakers

Umut Shayakhmetova CEO, Halyk Bank Murat Koshenov, CFA Deputy CEO, Corporate Banking Almas Makhanov Chief Risk Officer and Compliance Controller Aliya Karpykova Deputy CEO, Finance and Accounting Viktor Skryl Strategic office, International Activities

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Table of Contents

• 1. Secondary Public Offering
• 2. Halyk Group financial results for 9M 2019 & 3Q 2019
• 3. Digital and transactional banking update
• 4. Kazakhstan: Economic and Banking Sector Update
• 5. Q&A

Appendix

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Secondary Public Offering

One

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Selling shareholder JSC “Holding Group Almex” Offer Price per Offer GDR:

• $11.75 per Offer GDR (1 GDR represents 40 common shares of the Bank)

Structure and size

• Secondary Fully Marketed offering of GDRs
• Representing 29.32 million global depositary receipts ($344.47 million), 10% of Bank’s share capital

Closing date

• 4th October 2019

Distribution

• International offering to institutional investors outside the US in compliance with Reg S
• Rule 144A offering to QIBs in the US
• Domestic offering under rule 1.4 of the AIFC through the AIX

Lock-up

• 365 days for the selling shareholder and the Bank

Syndicate structure

• Joint Global Coordinators and Joint Bookrunners: Deutsche Bank, J.P. Morgan, JSC Halyk Finance
• Joint Bookrunner: Renaissance Capital

Enlarged investor base

• New and existing institutional investors have participated in the offering

Market significance Post offering shareholder structure

• Largest secondary Fully Marketed follow-on offering in EMEA

since 2017

• Largest FIG ECM offering in CIS/Russia since 2014
• First Fully Marketed follow-on Kazakh offering ever
• Largest Kazakh FIG ECM offering since 2007
• First Fully Marketed offering out of Kazakhstan with an innovative

dual-tranche LSE/AIX structure

Secondary Public Offering 2019

Pre-offering Post-offering Almex 74.7% 64.7% GDR holders (share) 16.2% 26.2% Identified GDR holders (number) more than 60 institutional investors more than 110 institutional investors ADTV (in GDRs) 79,690 (during 9 months before the SPO) 142,659 (during 1 month after the SPO) 54,784 (during 21 months before the SPO)

(1)

(1) according to the Bank’s estimation.

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Two

Halyk Group financial results for 9M 2019 & 3Q 2019

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9M 2019 9M 2018 Y-o-Y, % 3Q 2019 2Q 2019 Q-o-Q, % 3Q 2018 Y-o-Y, % Net income (1) 251.4 164.0 53.3% 87.2 89.7 (2.8%) 77.8 12.0% Net interest income (2) 292.4 249.2 17.3% 102.1 97.7 4.5% 84.8 20.4% Fee and commission income 89.8 83.7 7.2% 32.1 30.7 4.6% 29.4 9.4% RoAE, p.a. 29.7% 24.9% 29.6% 32.5% 33.8% RoAA, p.a. 3.8% 2.6% 3.9% 4.0% 3.7% Cost of risk (3), p.a. 0.6% 0.9% 0.8% 0.3% 0.8% NIM (4), p.a. 5.2% 4.9% 5.4% 5.1% 5.1%

9M 2019 & 3Q 2019 Performance Highlights

(1) attributable to common shareholders. (2) before credit loss expense. (3) credit loss expense on loans to customers / monthly average balances of gross loans to customers, on consolidated IFRS basis. (4) net interest income / average interest earning assets (monthly average balances of cash and cash equivalents (less cash on hand, correspondent and current accounts with the

NBK), financial assets at fair value through profit or loss (less derivative financial instruments), amounts due from credit institutions, financial assets at fair value through other comprehensive income, debt securities at amortized cost, net of allowances for expected credit losses, net loans to customers), on consolidated IFRS basis.

(5) previously in consolidated reports recoveries of provisions on KKB loans created before the acquisition of KKB by Halyk (5 July 2017) were reflected in other non-interest income.

As per paragraph 5.5.14 of IFRS 9, starting from 3Q 2018 these recoveries of provisions are being reclassified as an impairment gain and recognized as reduction of credit loss

• expenses. Therefore, cost of risk for 3Q 2018 was recalculated taking into account such recoveries of provisions.

KZT bn

(5)

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01.10.2019 01.01.2019 YTD, % 01.07.2019 Q-o-Q, % Total assets 8,992 8,959 0.4% 9,059 (0.7%) Cash and cash equivalents 1,733 1,755 (1.2%) 2,111 (17.9%) Securities (1) 2,963 3,009 (1.5%) 2,717 9.0% Gross loans 3,991 3,891 2.6% 3,909 2.1% Net loans 3,567 3,481 2.5% 3,493 2.1% Total deposits 6,191 6,527 (5.1%) 6,220 (0.5%) Total equity 1,227 1,066 15.1% 1,128 8.8% Provisions / gross loans 10.6% 10.5% 10.7% Loans / deposits ratio (2) 55.3% 53.9% 54.5% Liquid assets / total assets (3) 45.6% 48.3% 48.0% NPLs 90 days+ / gross loans (4) 8.2% 8.5% 8.7%

9M 2019 & 3Q 2019 Performance Highlights

(1) financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, debt securities at amortized cost, net of allowances for expected

credit losses, on consolidated IFRS basis.

(2) average annual balance of net loans to customers / average annual balance of amounts due to customers, on consolidated IFRS basis. (3) cash and cash equivalents, the NBK notes, Treasury bills of the Ministry of Finance of Kazakhstan, Treasury bills of governments of other countries, Notes of national banks of other

countries, Bonds of quasi-sovereign banks) / total assets, on consolidated IFRS basis.

(4) total NPLs 90 days+ (total principal amount of loans and accrued interest with principal and/or interest overdue by more than 90 days) / gross loan portfolio, unconsolidated (Bank

• nly), IFRS). KKB's NPLs 90+ and total loans are accounted at fair value, i.e. net of provisions created before 4 July 2017.

KZT bn

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Interest Income

Interest Income and Interest Expense Net Interest Margin (2) and Net Interest Spread (2),(3) Net Interest Income (1)

(1) before credit loss expense. (2) net interest income / average interest earning assets (monthly average balances of cash and cash equivalents (less cash on hand, correspondent and current accounts with the

NBK), financial assets at fair value through profit or loss (less derivative financial instruments), amounts due from credit institutions, financial assets at fair value through other comprehensive income, debt securities at amortized cost, net of allowances for expected credit losses, net loans to customers), on consolidated IFRS basis. Due to change in representation policy Net interest margin and Net interest spread are recalculated for all shown periods.

(3) average interest rate on interest earning assets, less average interest rate on average interest bearing liabilities, on consolidated IFRS basis.

Comment

KZT bn

• Net interest margin and net interest spread increased in 3Q 2019 vs. 2Q

2019 due to one-off expenses in 2Q 2019 related to the amortisation of discount on receivables on sale of assets in installments. KZT bn 502.6 531.4 167.9 179.9 175.3 (253.4) (239.0) (83.0) (82.3) (73.2) 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Interest income Interest expense 249.2 292.4 84.8 97.7 102.1 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 4.9% 5.2% 5.1% 5.1% 5.4% 5.1% 5.2% 5.4% 5.0% 5.3% 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Net interest margin Net interest spread (2.6%) 4.6%

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12,647 11,554 4,195 3,841 4,228 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Bank transfers – settlements

Fee and Commission Income

Fee and Commission Income

KZT mln

Fee and Commission Expense Breakdown of Selected Fee and Commission Income (1) Comment

• The fee and commission income dynamics continued its positive trend in

3Q 2019.

• The decrease in fees derived from cash operations in 3Q 2019 vs. 2Q 2019

and 3Q 2018 was mainly due to increased volumes

• f non-cash

transactions.

(1) adjusted: the portion of fees relating to payment card operations which was previously accounted within cash operations and bank transfers are recalculated as fees derived from

payment cards operations for all shown periods.

83,736 89,796 29,350 30,711 32,112 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 18,938 30,498 7,258 10,358 11,612 9,234 8,837 2,941 2,878 2,967 28,172 39,335 10,199 13,236 14,579 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Other fees and commissions expense Deposit insurance fees 38,799 45,609 13,561 15,392 16,760 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Payment cards operations 9,268 8,283 3,712 2,976 2,821 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Cash operations KZT mln KZT mln 4.6% 9.4% 42.9% 10.1% 23.6% 8.9% (24.0%) (5.2%) 0.8% 10.1%

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2.1% 1.5% 1.7% 1.5% 1.5% 9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 1.7% 1.6%

Operating Costs

KZT mln

Operating Expenses Cost-to-Income (1)(4) Cost-to-Average Assets (5) Comment

• Operating expenses for 3Q 2019 increased by 3.3% vs. 2Q 2019 mainly due

to increase in salaries and other employee benefits as a result of increase in premium reserves in 3Q 2019.

(1) including loss from impairment of non-financial assets. (2) including loss from impairment of non-financial assets of KZT 31.5 bn; (3) including loss from impairment of non-financial assets of KZT 1.2 bn. (4) operating expense (operating expenses, impairment of non-financial assets) / operating income (net interest income before credit loss expense, net fees and commissions, other non-

interest income, less insurance claims incurred, net of reinsurance, and expenses for insurance reserves), annualised, on consolidated IFRS basis.

(5) operating expense / average monthly assets, annualised, on consolidated IFRS basis.

59,557 59,557 57,170 19,720 19,048 20,385 66,656 35,118 31,861 12,867 10,914 11,217 8,302 8,302 8,469 2,684 3,167 2,633 134,515 102,977 97,500 35,271 33,129 34,235

• 20,000

9M 2018 9M 2018 Adjusted 9M 2019 3Q 2018 2Q 2019 3Q 2019 Depreciation and amortisation expenses Other Salaries and other employee benefits 398,366 420,142 139,438 148,350 146,668 134,515 97,500 35,271 33,129 34,235 25.3% 22.3% 23.3% 33.8% 23.2%

• 0.1
• 0.05

• 100,000

9M 2018 9M 2019 3Q 2018 2Q 2019 3Q 2019 Operating income Operating expense Cost-to-income

(2) (3)

(2.9%) 3.3%

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763 782 727 713 143 119 137 127

01.01.2019 01.04.2019 01.07.2019 01.10.2019

Stage 3 Stage 2 906 901 864 840 2,985 2,933 3,045 3,151

01.01.2019 01.04.2019 01.07.2019 01.10.2019

Stage 1 2,315 2,311 2,337 2,355 587 547 565 589 989 976 1,007 1,047

01.01.2019 01.04.2019 01.07.2019 01.10.2019

Corporate SME Retail 3,891 3,834 3,481 3,421 3,493 3,567 410 414 417 424 3,891 3,834 3,909 3,991

01.01.2019 01.04.2019 01.07.2019 01.10.2019

Net loans Provisions

Loan Portfolio

KZT bn

Total Gross Loans (2) Stage 1 (gross basis) Total Gross Loans by Sectors

67.2% 68.1% 71.6% 71.6% 32.8% 31.9% 28.4% 28.4%

01.01.2019 01.04.2019 01.07.2019 01.10.2019 KZT FX

59.5% 25.4% 15.1%

Total Net Loans by Currencies

(1) Due to the resegmentation of certain loans, the amounts and shares of Corporate and SME sectors in total gross loans were recalculated as of 1 January, 2019 and 1 April, 2019. (2) Due to IFRS requirements, KKB loans were consolidated on net basis (i.e. net of provisions created before 4 July 2017). (3) Including POCI.

60.3% 14.3% 25.4%

KZT bn

3,909

25.8% 14.4% 59.8%

(1) (1)

3,991

26.2% 14.8% 59.0%

Stage 2 + Stage 3 (3) (gross basis)

5.6%

KZT bn

2.6%

KZT bn

(7.3%)

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Stage 3 (6) (7) 906,060 900,919 864,477 839,558 23.3% 23.5% 22.1% 21.0%

01.01.2019 01.04.2019 01.07.2019 01.10.2019 Stage 2 + Stage 3 Ratio (Stage 2 + Stage 3 / Gross Loans )

763,396 781,993 726,983 712,641 19.6% 20.4% 18.6% 17.9%

01.01.2019 01.04.2019 01.07.2019 01.10.2019

Stage 3 Ratio (Stage 3 / Gross Loans )

9.8% 10.5% 10.8% 10.7% 10.6% 79.4% 129.2% 120.7% 128.4% 131.9%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019 Provisioning Rate Coverage Ratio

(1) total NPLs 90 days+ (total principle amount of loans and accrued interest with principle and/or interest overdue by more than 90 days/ gross loans portfolio, Bank only, IFRS). KKB's NPLs

90+ and total loans are accounted at fair value, i.e. net of provisions created before 4 July 2017.

(2) IFRS provisions/gross loans, on consolidated IFRS basis. (3) taking into account a gross and net basis of purchased credit-impairment financial assets from KKB, write-offs on consolidated IFRS basis for 9M 2019 were KZT 54.3 bn and KZT 19.4 bn

accordingly.

(4) credit loss expense on loans to customers / monthly average balances of gross loans to customers, annualised, on consolidated IFRS basis. (5) previously in consolidated reports recoveries of provisions on KKB loans created before the acquisition of KKB by Halyk (5 July 2017) were reflected in other non-interest income. As per

paragraph 5.5.14 of IFRS 9, starting from 3Q 2018 these recoveries of provisions are being reclassified as an impairment gain and recognized as reduction of credit loss expenses. Therefore, cost of risk for 2Q and 3Q 2018 were recalculated taking into account such recoveries of provisions.

(6) including POCI. (7) Stage 3 loans include NPL 90+, restructured loans and other loans with signs of impairment.

Cost of Risk on a Consolidated Basis

394 317 343 324 322 10.9% 8.5% 9.1% 8.7% 8.2%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Amount Ratio KZT bn

Cost of Risk(4) (5) NPL 90 days+ (1) Dynamics Provisioning Rate(2) + NPL 90 days Coverage Ratio 23.2 17.1 20.9 6.9 2.7 8.3 2.4% 0.8% 0.3% 0.8% 0.9% 0.6%

9M 2018 9M 2019 2Q 2018 3Q 2018 2Q 2019 3Q 2019 Credit loss expense on loans to customers Credit loss expense, as % of loan portfolio

Stage 2 + Stage 3 Work-out of problem loans collateral by SPVs

(3)

KZT mln 181,254 193,176

Problem assets 01.01.2019 Transfers from the Bank Disposals Problem assets 01.10.2019

48,413 (39,491)

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41.4% 41.0% 42.6% 41.8% 42.2% 58.6% 59.0% 57.4% 58.2% 57.8%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

By currencies

KZT FX

Funding Base

49.7% 48.3% 50.3% 55.8% 49.6% 50.3% 51.7% 49.7% 44.2% 50.4%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

By currencies

KZT FX KZT bn

Retail Deposits Deposits of Legal Entities

1,229 1,375 1,289 1,455 1,273 1,592 1,757 1,814 1,524 1,750 2,822 3,131 3,103 2,979 3,023

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

By types

Term Deposits Current Accounts

2,848 2,918 2,843 2,770 2,717 399 478 438 471 451 3,247 3,396 3,282 3,241 3,167

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

By types

Term Deposits Current Accounts

87.7% 85.9% 86.6% 41.5% 58.5% 56.1% 43.9% 56.4% 43.6% 14.1% 12.3% 13.4% 14.5% 51.2% 48.8%

KZT bn

85.5% 14.2% 85.8% 57.9% 42.1%

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952 1,029 1,113 1,093 1,195 114 83 86 85 88 1,065 1,111 1,199 1,178 1,283

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019 Tier 1 Tier 2

Solid Capital Position

Capital Adequacy Ratios, consolidated (1) Capital Structure, consolidated (2),(3) Capital Adequacy Ratios of Halyk Bank, only (1) Capital Structure, Halyk Bank, only (2),(3)

17.8% 18.5% 19.5% 18.3% 20.0% 19.9% 19.9% 20.9% 19.6% 21.2%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019 CET 1 Tier 1 Total capital

942 1,015 1,087 1,072 1,160 109 98 99 99 109 1,051 1,113 1,186 1,171 1,269

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019 Tier 1 Tier 2

(1) starting from 1 January 2016, the Bank calculates its capital (both consolidated and unconsolidated) taking into account the principals, methods and coefficients employed by Basel III

Committee.

(2) almost the entire capital is a high quality core capital as a result of limited use of Tier 2 instruments. (3) as a result of merger of KKB into Halyk Bank, Tier 2 capital from KKB was transferred to Halyk Bank. Therefore, starting from 28 July 2018, capital structure of Halyk Bank includes Tier 2

capital. . KZT bn

19.4% 19.7% 20.4% 19.7% 21.4% 21.6% 21.6% 22.3% 21.5% 23.4%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019 k1 - Halyk k1-2 - Halyk k2 - Halyk

k2 minimum = 12% k1-2 minimum = 10.5% k1 minimum = 9.5%

KZT bn

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Halyk Bank’s Market Position

30.2% 29.3% 28.8%

01.04.2019 01.07.2019 01.07.20192

31.4% 30.3% 29.7%

01.04.2019 01.07.2019 01.10.2019

34.7% 34.4% 33.1%

01.04.2019 01.07.2019 01.10.2019

35.8% 34.6% 35.5%

01.04.2019 01.07.2019 01.10.2019

#1 #2 #2 #2 #2 #2 #1 #1 #1

38.0% 37.5% 36.6%

01.04.2019 01.07.2019 01.10.2019

#1

38.7% 38.7% 38.3%

01.04.2019 01.07.2019 01.10.2019

#1 #1

37.3% 36.4% 35.1%

01.04.2019 01.07.2019 01.10.2019

#1 #1 Total Assets Gross Loans Net Loans Equity (4) Total Deposits Total Corporate Deposits Total Retail Deposits (5) Corporate Current Accounts Retail Current Accounts Net Income (1) Net Interest Income (2) Net F&C Income

54.5% 50.1% 46.3%

1Q 2019 2Q 2019 3Q 2019

#1 #1 #1

44.2% 42.9% 43.0%

01.04.2019 01.07.2019 01.10.2019

#1 #1 #1

43.1% 41.5% 39.9%

01.04.2019 01.07.2019 01.10.2019

#1 #1 #1 #1 #1 #1

18.6% 16.8% 16.0%

1Q 2019 2Q 2019 3Q 2019

#2 #2 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #2

38.3% 44.8% 36.9%

1Q 2019 2Q 2019 3Q 2019

#1 #1 #1

(1) excl. banks with negative income. (2) after credit loss expense, excl. negative net interest income. (3) adjusted market share (without the accelerated amortization of discount on the Bank’s Eurobonds due to early prepayment of USD 200 mln on 1 March 2019) – 64.0%. (4) excl. banks with negative equity. (5) consists of term deposits and current accounts.

Source: NBK (unconsolidated, KAS), Halyk Bank.

(3)

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Digital and transactional banking update

Three

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 New “simple” Card product With more attractive conditions

(October 2019)

Strategic projects in digital space

Customer centric transformation Loyalty program improvement

Goals Selected strategic initiatives

• Easy onboarding
• Improving customer experience
• Enhancing product proposition leading to increase number of clients

and volume of transactions

Functionality development

 QR with Egov Ability to pay electronic government services using a QR code of Halyk

(October 2019)

 Loyalty program 1% Go!Bonus

• n each

transaction

(October 2019)

1% Go!Bonus

 Go Digital “Go Digital” division was created and external counsels were hired to develop new initiatives.

(beginning 2019)

 Onlinebank

• 24/7 payments in the

system of the Bank (the first bank to launch)

• QR code for receiving

payments

• Сounterparty verification
• Billing for payment

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1,579 1,756 1,902 2,057 3,375 3,585 3,653 3,767 4,068 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 42% 48% 54% 60% 43% 51% 61% 69% 82% Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

High growth potential driven by improving utilisation of digital channels

Number of retail internet banking users (‘000)

+2.6x in 2 years

Mobile banking customers as % of retail internet banking users 81.6 93.4 98.3 116.9 112.0 131.3 165.9 169.0 171.9 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Number of corporate internet banking users (‘000)

Improving utilisation of digital channels

+2.1x in 2 years

Customer activity Q-o-Q dynamic

Volume of non-cash payments(1) Number of non-cash payments(1) Volume of non-cash payments in the Internet(2) Number of payments at Homebank Number of P2P transfers

+5.9% +11.3% +6.0% +9.4% +11.7%

(1) POS (point of sale), eCommerce, internet banking (2) eCcommerce, internet banking Soure: Company information

21 79% 77% 65% 64% 55% 41% 38%

Germany USA Kazakhstan Russia China Brazil Turkey 2015 2016 2017 2018 1Q 2019 2Q 2019 3Q 2019 2015 2016 2017 2018 31.03.2019 30.06.2019 30.09.2019

% of population with internet access (2018) Issued cards in Kazakhstan(1) % smartphone penetration (2018) Card transaction volume in Kazakhstan(2)

(1) Total amount of cards in circulation distributed by banks of Kazakhstan (2) Transaction volume using cards issued by the banks of Kazakhstan (*) At 30-Sep-2019 Source: NBRK, GMSA database, Euromonitor

3 cards per capita* 1 ATM per 794 persons* 17 POS per 1,000 persons*

23.4 19.4 15.7 17.2 26.4 24.4 20.0 13.8 10.4 8.3 8.0 7.1 5.8 30.6 90% 88% 85% 84% 77% 72% 62%

Germany Kazakhstan USA Turkey Russia Brazil China

Digital banking in Kazakhstan has high potential

KZTtn mln

22

Kazakhstan: Economic and Banking Sector Update

Four

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Macroeconomic stability Comment Investment grade sovereign ratings Deceleration of industrial output and investments

Source: Bloomberg Source: The National Bank of Kazakhstan (NBK), *Halyk Finance estimation of nominal GDP Source: Committee on Statistics of Kazakhstan

Agency Rating Outlook Date Moody's Baa3 Positive 22.08.2019 S&P BBB- stable 06.09.2019 Fitch BBB stable 06.09.2019 171 172 173 170 171 176 56 58 60 61 65 67 4.2% 4.1% 4.1% 3.8% 4.4% 4.3%

01.07.2018 01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019*

Nominal GDP for 12 months (US$bn) Nominal GDP for 12 months (KZTtrn) Real GDP growth, %,yoy

Macro Update

25.8% 21.6% 17.2% 7.0% 11.7% 9.0% 5.2% 4.8% 4.1% 3.2% 2.6% 3.3%

01.07.2018 01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Capital Investments (yoy growth) Industrial production (yoy growth)

• Growth in Kazakhstan’s economy after a slowdown to 3.8% yoy in the first

quarter accelerated to 4.3% in January-September. At the same time, economic growth was less dependent on the commodity sector, oil prices touched the low of $58.9/bbl and remained volatile in the second part of the

• year. Faster growth in the non-resource sector reflect increased stimulatory

impact of fiscal policy and strong investment in fixed assets.

• In sectoral breakdown, the economy snapshot shows a slight slowdown in

industrial output to 3.3% (4.8% yoy in 9М18) while in transport it grew to 5.5% yoy (4.6% yoy in 9M2018), in construction to 13.5% yoy (4.4% yoy in 9M18) and trade to 7.6% yoy (6.7% yoy in 9H18).

• Growth of investments in fixed assets was at a high level of 9.7% yoy in

January-September this year (21.6% YTD in 2018), which is a very strong indicator given the growth of 25.8% yoy in the same period last year. It is noteworthy to mention that in 2018 investments have increased significantly by 17.2% yoy, reaching 18.9% of GDP, which was the best indicator since 2010.

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Stable low unemployment with moderate inflation

Source: Statistics Committee

Macro Update

6.1% 5.3% 4.8% 5.4% 5.3% 4.8% 4.8% 4.8% 4.8% 4.8%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Inflation (yoy) Unemployment Rate

Pick up in real wages support consumption

5.6% 7.0% 6.5% 4.8% 5.4% 5.5% 3.3% 4.6% 5.0% 7.1% 7.8% 6.4%

01.07.2018 01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.09.2019

Real retail sales, YTD Real wages, YTD

Source: Statistics Committee

• Due to payable services administration by the state and keeping fuel prices

restrained inflation reached three year lowest at 4.8% yoy in March. Since then it started to accelerate under the food prices pressure that reached 9.1% in

• September. Non-food prices recorded the lowest of 5.4% yoy since 2017. The

effect of payable services administration by the state is at place and recorded 0.7% yoy (the lowest metrics since 2017).

• However, inflationary expectations of the population are high and 71% of the

respondents believe that the forward looking inflation will be more than 6% and will step over by 20% in 12 months to come.

• The real wages growth accelerated in the January-August as the government

raised minimum wages and also committed large sums to raising wages in public sector. Wages rose by around 6.4% in real terms within 9M2019 amid inflation increase to 5.5% in August and decrease to 5.3% in September.

• Retail sales after starting this year with an increase of 4.4% yoy in January,

gradually accelerated to 5.5 % yoy in 8M2019. Consumer lending expands and acts as an important force propelling retail trade together with the bad consumer loans write-offs using allocations from the budget and problem loans fund.

25

Macro Update

Exchange rate dynamics Interest rate adjustment

Source: The National Bank of Kazakhstan Source: Bloomberg

363 384 380 381 388 82 54 69 67 59

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

USD/KZT Exchange rate Brent Oil Price 12.0% 10.5%10.25% 9.25% 9.0% 9.25%

01.01.2017 21.02.2017 06.06.2017 22.08.2017 10.10.2017 28.11.2017 16.01.2018 06.03.2018 17.04.2018 05.06.2018 16.10.2018 10.01.2019 05.03.2019 16.04.2019 16.07.2019 10.09.2019 29.10.2019

Base rate 11.0%

* the next base rate committee – 09.12.2019

9.0%

• After the rate cut in April to 9.0% the base rate stayed unchanged for 4

months in a run. In September the regulator made a rate hike to 9.25% amid raising business activity, growth of the real wage and raising food prices to.

• The rate hike occurred amid liquidity sterilization by the NBK’s notes that as of

the end of September amounted to KZT2,850bn while the effective annual yield made 9.39% vs. KZT3,521bn and 8.6% in the beginning of the year. The NBK makes its notes placements at more than 10% since the end of June moving excess liquidity volumes from short placement terms to more distant

• nes.
• Oil prices that peaked in April at 74.6bbl evidenced downward correction and

in August plunged to the second yearly low at USD56.2bbl. In the mid of September it peaked at 69.02bbl and ended the 3Q2019 at 58.89bbl. 9.25% 9.75%

26

Macro Update

External Government debt Stable FX reserves

Source: The National Bank of Kazakhstan Source: The Ministry of Finance of Kazakhstan

56.4 58.0 59.0 58.2 59.4 30.0 30.9 27.0 28.2 28.8 86.4 88.9 86.0 86.4 88.2

01.10.2018 01.01.2019 01.03.2019 01.07.2019 01.10.2019

Oil Fund FX Reserves (US$bn) NBK FX Reserves (US$bn) 40.0 40.1 41.4 40.7 41.2 23.3% 23.2% 24.3% 23.8% 25.5%

01.10.2019 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Government debt (bn.$) Government debt/GDP

• Consolidated international reserves amounted to $88.2bn in September

2019.

• The NBK international reserves’ imports coverage ratio was circa 7.7 months,

which was far in excess than accepted metrics of 3 months of imports.

• Increased budget spending went on raising public sector wages, pensions,

and building social housing, with wage increases for budget sector workers will be over the next three years. In nine months expenditures increased by 17% yoy increase due to the social sphere allocations growth by 27% yoy and allocations for economy by 20% yoy. Despite the increase in expenditures, the planned 2% budget deficit is lower at -2.9% of GDP in 2012 and 2.2% of an average in 2010-2018.

• In September 2019, Kazakhstan made two Eurobonds placements of total

EUR1,15bn with a low yield rate of 0.6% (7 years bonds) -1.5% (15 years bonds) despite a good demand.

• This year, the National Fund transfers to the budget increased to KZT3.1

trillion from KZT2.6 trillion in 2018.

27 Source: The National Bank of Kazakhstan

• 6.0
• 8.1
• 5.1
• 0.3
• 1.9

2015 2016 2017 2018 1H2019

Current account

• 4.7
• 3.8
• 3.6
• 4.7
• 1.8

2015 2016 2017 2018 1H2019

Services balance

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

• 11.6
• 13.5
• 18.1
• 22.1
• 11.6

2015 2016 2017 2018 1H2019

Primary income balance

Macro Update

Current account Trade balance

Source: The National Bank of Kazakhstan USDbn

Services balance Primary income balance

11.6 9.3 16.7 25.5 11.4

2015 2016 2017 2018 1H2019

Trade balance USDbn USDbn USDbn

28

24,539 25,244 24,577 25,350 26,118

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

4,164 4,040 4,541 5,303 5,436 5,537

1.42 1.43 1.56 1.74 1.77 1.79

1.4 1.5 1.6 1.7 1.8 1.9 2

• 1,000

2,000 3,000 4,000 5,000 6,000

2015 2016 2017 2018 1Q19 01.05.2019

Dynamics of total Retail loans (bn KZT) loans/borrowers

# of banks operating in Kazakhstan Kazakhstan banking sector assets

Macro Update

38 35 33 32 28 28

2014 2015 2016 2017 2018 2019 Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

Dynamics of top 5 ranking in Kazakhstan banking sector

Source: First Credit Bureau LLP Source: The National Bank of Kazakhstan

Dynamics of total Retail loans in Kazakhstan banking sector

4 5 1 2 3 1 2 3 4 5

01.10.2018 01.10.2019 KZTbn

29 Source: Statistical Bulletin of the National Bank of Kazakhstan, Deposits in the NBK statistical bulletin include all deposits in national and foreign currency in STBs (legal entities and individuals), and in the NBK (legal entities), with the excluding of deposits from non-residents, deposits from the central government, deposits from banks with the National Bank and in other banks. Loans in the NBK statistical bulletin include all loans in national and foreign currencies in STBs (legal entities and individuals) with the excluding of loans to non-residents

Corporate loans 7,571 7,789 7,037 7,072 7,159 5,096 5,303 5,436 5,835 6,236

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Retail loans

Loan growth dynamics Deposit growth dynamics

Data adjusted for deposits of non-financial organizations in the NBK

8,364 8,657 8,450 8,567 8,711 9,284 9,896 8,758 8,739 9,398

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Retail deposits Corporate deposits 13,395 12,668 17,648 18,553 13,092 +3.8% +4.6%

Growth Driven by Retail Lending

17,208 12,473 Corporate lending increased by 1.23% (Q-o-Q), retail lending added 6.9% (Q-o- Q). The main drivers of retail lending continue to be consumer lending and mortgage loans. In 2019, consumer lending becomes the largest segment in total lending with a share of 29.4% (25% at the end of 2018, 23% at the end of 2017, 20% at the end of 2016). Previously, the lending for the purchase of working capital had the highest share. Retail deposits increased by 1.7% (Q-o-Q). Corporate deposits in the economy decreased by 7.5% (Q-o-Q). KZTbn KZTbn 12,907 17,306 18,109

30

5.1 5.4 4.8 4.9 5.0 2.5 2.4 2.2 2.3 2.1 01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019 Corporate SME 3.2 3.3 3.4 3.7 3.9 1.2 1.3 1.4 1.6 1.6 0.7 0.7 0.7 0.6 0.7

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Consumer Mortgage Other

Dynamics of Retail lending (gross) Dynamics of Corporate lending (gross)

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

Dynamics of Retail and Corporate Lending

• The main drivers of retail lending are: consumer lending (+17.6% from the

beginning of the year) which accounted for 63% of total retail lending (63% at the end of 2018) and mortgage lending (+ 4.3% from the beginning of the year) which took 28% of retail lending (22% at the end of 2018).

• The structure of corporate lending at the end of 3Q 2019: the services and
• ther sectors - 28% (at the end of 2018 - 26%), industry loans - 26% (at the

end of 2018 - 26%), trade loans – 23.5% (at the end of 2018 - 23%), loans to construction - 9.5% (at the end of 2018 - 10%), transport – 7.8% (at the end

• f 2018 - 8%), agriculture – 3.6% (at the end of 2018 - 6.3%).
• Bank loans issued to SME since the beginning of the year decreased by

10%. The main segments of SME lending are trade with 25% share (23% - at the end of 2018), other sectors with 40% share (36% - at the end of 2018).

KZTtn KZTtn

29.4% 25.3% 25.3% 27.3% 12.3% 9.5% 10.0% 10.9% 4.9% 5.4% 5.2% 5.4% 16.0% 19.8% 18.1% 17.6% 37.5% 40.0% 41.4% 38.8%

Share in total gross loans Share in total gross loans

28.5% 12.5% 5.0% 17.5% 37.9%

31 Source: Statistical Bulletin of the National Bank of Kazakhstan, Deposits in the NBK statistical bulletin include all deposits in national and foreign currency in STBs (legal entities and individuals), and in the NBK (legal entities), with the excluding of deposits from non-residents, deposits from the central government, deposits from banks with the National Bank and in other banks. Loans in the NBK statistical bulletin include all loans in national and foreign currencies in STBs (legal entities and individuals) with the excluding of loans to non-residents

22.5% 27.0% 31.3% 19.2% Retail – FX Retail – KZT Corporate – KZT Corporate – FX 21.2% 26.9% 29.5% 22.4%

Currency and Sector Breakdown of Deposits

KZT 82.5% FX 17.5%

Lending breakdown Share of FX deposits in the banking system

By currency By sector Other 14.6% Communication services 1.0% Transport 4.2% Agriculture 1.9% Construction 5.1% Industry 14.0% Trading 12.6% 01.07.2019 01.10.2019

FX 41.6% KZT 58.4% FX 43.6% KZT 56.4%

Total: KZT 13.4 tn Total: KZT 17.3 tln Total: KZT 18.0 tln

• The banking system is focused on lending for trade, services and retail

lending.

• The main impact on the total inflow of deposits is caused by a significant

increase in corporate foreign currency deposits (+KZT750bn YTD) with an

• utflow of tenge corporate deposits of –KZT83.7bn YTD.

32

2,911 3,022 3,060 3,128 3,295

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Banking sector capital ( KZTbn)

Sector Funding Structure, Capital Adequacy and Asset Quality

Steady equity build-up RoE

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

Funding structure NPL levels dynamics

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

13.2 13.8 13.0 13.6 14.3 16.6 17.0 16.7 16.6 17.0 79.3% 80.8% 78.3% 82.0% 84.0%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

Gross Loans (KZTtrn) Customer Deposits (KZTtrn) Loans/Deposits 1,124 1,016 1,123 1,280 1,331 8.5% 7.4% 8.6% 9.4% 9.3%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

NPLs (90 days+), KZTbn NPL Ratio (90 days+)

• At the moment, the main driver of lending is lending to individuals and

companies in the trade and services sector. 23.3% 21.0% (6.5%) 14.2% 18.6%

01.10.2018 01.01.2019 01.04.2019 01.07.2019 01.10.2019

RoE Banking Sector

33

APPENDIX

34

9M 2019 9M 2018 Y-o-Y, % 3Q 2019 2Q 2019 Q-o-Q, % 3Q 2018 Y-o-Y, % Interest income 531,389 502,606 5.7% 175,305 179,901 (2.6%) 167,867 4.4% Interest expense (239,022) (253,374) (5.7%) (73,198) (82,250) (11.0%) (83,044) (11.9%) Net interest income before credit loss expenses 292,367 249,232 17.3% 102,107 97,651 4.6% 84,823 20.4% Fee and commission income 89,796 83,736 7.2% 32,112 30,711 4.6% 29,350 9.4% Fee and commission expense (39,335) (28,172) 39.6% (14,579) (13,236) 10.1% (10,199) 42.9% Net fee and commission income 50,461 55,564 (9.2%) 17,533 17,475 0.3% 19,151 (8.4%) Insurance income

(1)

3,770 2,987 26.2% 628 2,299 (72.7%) 1,199 (47.6%) Other non-interest income

(2)

49,869 76,153 (34.5%) 16,699 20,240 (17.5%) 26,562 (37.1%) Credit loss expense and recoveries of other credit loss expense

(3)

(21,827) (28,097) (22.3%) (7,060) (5,391) 31.0% (7,568) (6.7%) Operating expenses

(4)

(97,500) (134,515) (27.5%) (34,235) (33,129) 3.3% (35,271) (2.9%) Income tax expense (25,752) (68,144) (62.2%) (8,513) (9,418) (9.6%) (10,947) (22.2%) Net Profit from continuing operations 251,388 153,180 64.1% 87,159 89,727 (2.9%) 77,949 11.8% Non-controlling interest

• (807)
• 162
• Profit for the period from discontinued operations
• 9,974
• Net Profit

251,388 163,961 53.3% 87,159 89,727 (2.9%) 77,787 12.0%

Dynamics

KZT mln

P&L Summary

(1) insurance underwriting income (gross insurance premiums written, net change in unearned insurance premiums, ceded reinsurance share) less insurance claims incurred, net of

reinsurance (insurance payments, insurance reserves expenses, commissions to agents).

(2) other non-interest income (net gain on foreign exchange operations, net loss from financial assets and liabilities at fair value through profit or loss, net realised gain from financial assets

at fair value through other comprehensive income (IAS 39 - available-for-sale investment securities),share in profit of associate and other income).

(3) total credit loss expense (including credit loss expense on loans to customers, amounts due from credit institutions, other assets, financial assets at fair value through other

comprehensive income and cash and cash equivalents) plus recoveries of other credit loss expense.

(4) including loss from impairment of non-financial assets.

35

30/09/2019 30/06/2019 Q-o-Q, % 31/12/2018 Change YTD, % Total assets 8,992,491 9,059,149 (0.7%) 8,959,024 0.4% Cash and reserves 1,869,364 2,224,142 (16.0%) 1,870,879 (0.1%) Amounts due from credit institutions 48,185 51,357 (6.2%) 55,035 (12.4%) T-bills & NBK Notes 1,964,806 1,817,083 8.1% 2,226,320 (11.7%) Other securities & derivatives 998,379 900,282 10.9% 782,356 27.6% Gross loan portfolio 3,990,965 3,909,256 2.1% 3,890,872 2.6% Stock of provisions (424,255) (416,681) 1.8% (409,793) 3.5% Net loan portfolio 3,566,710 3,492,575 2.1% 3,481,079 2.5% Other assets 486,854 517,720 (6.0%) 487,226 (0.1%) Assets classified as held-for-sale 58,193 55,990 3.9% 56,129 3.7% Total liabilities 7,765,703 7,931,554 (2.1%) 7,893,378 (1.6%) Total deposits, including: 6,190,717 6,220,463 (0.5%) 6,526,930 (5.2%) retail deposits 3,167,448 3,241,081 (2.3%) 3,395,590 (6.7%) term deposits 2,716,866 2,770,374 (1.9%) 2,918,070 (6.9%) current accounts 450,582 470,707 (4.3%) 477,520 (5.6%) corporate deposits 3,023,269 2,979,382 1.5% 3,131,340 (3.5%) term deposits 1,273,017 1,455,387 (12.5%) 1,374,592 (7.4%) current accounts 1,750,252 1,523,995 14.8% 1,756,748 (0.4%) Debt securities 919,154 903,536 1.7% 900,791 2.0% Amounts due to credit institutions 337,211 476,703 (29.3%) 168,379 100.3% Other liabilities 318,621 330,852 (3.7%) 297,278 7.2% Equity 1,226,788 1,127,595 8.8% 1,065,646 15.1%

Balance Sheet Summary

KZT mln

36

Key Financial Indicators

(1) net loans to customers / amounts due to customers, on consolidated IFRS basis. (2) (cash and cash equivalents, the NBK notes, Treasury bills of the Ministry of Finance of Kazakhstan, Treasury bills of governments of other countries, Notes of national banks of other

countries, Bonds of quasi-sovereign banks) / total assets, on consolidated IFRS basis.

(3) allowance for expected credit losses/ gross loan portfolio, on consolidated IFRS basis.

30-Sep-19 30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 Amounts due to customers / total liabilities 79.7% 78.4% 82.8% 82.7% 81.9% Loans / deposits ratio (1) 57.6% 56.1% 53.6% 53.3% 53.7% Liquid assets / total assets (2) 45.6% 48.0% 48.6% 48.3% 48.0% IFRS Provisioning rate (3) 10.6% 10.7% 10.8% 10.5% 9.8% Common Equity Tier 1 capital adequacy ratio 20.0% 18.3% 19.5% 18.5% 17.8% Tier 1 capital adequacy ratio 20.0% 18.3% 19.5% 18.5% 17.8% Total capital adequacy ratio 23.4% 19.6% 20.9% 19.9% 19.9% k1 capital adequacy ratio 21.4% 19.7% 20.4% 19.7% 19.4% k1-2 capital adequacy ratio 21.4% 19.7% 20.4% 19.7% 19.4% k2 capital adequacy ratio 23.4% 21.5% 22.3% 21.6% 21.6%

37

30-Sep-19 30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 Number of branches and outlets 631 641 645 647 656 Number of ATMs 4,481 4,383 4,407 4,408 4,559 Number of POS-terminals 78,247 74,119 70,527 67,053 67,905 Information and transaction terminals (multiservice kiosks) 35 63 69 71 73 Payment terminals 1,031 1,046 1,069 1,097 1,093 Clients of internet banking, individuals 4,068,065 3,767,298 3,652,853 3,584,961 3,375,190 Clients of internet banking, legal entities 171,919 168,979 165,858 131,271 112,000 SMS banking clients 3,832,103 3,085,000 3,084,739 3,095,331 2,910,031 Payment card holders 8,106,443 8,117,911 8,099,654 8,397,187 8,282,927 Payroll project clients (legal entities) 32,300 39,839 41,237 41,003 41,312 3Q 2019 2Q 2019 1Q 2019 4Q 2018 3Q 2018 Cost-to-income (1) 23.3% 22.3% 24.1% 31.1% 25.3% Return on average common shareholders’ equity (RoAE) 29.6% 32.5% 26.8% 35.5% 33.8% Return on average assets (RoAA) 3.9% 4.0% 3.3% 4.1% 3.7% Net interest margin 5.4% 5.1% 5.0% 5.6% 5.1% Operating expenses / average total assets 1.5% 1.5% 1.3% 1.7% 1.7%

Key Financial Indicators (Continued)

(1) operating expense / operating income (net interest income before credit loss expense, net fees and commissions, other non-interest income, less insurance claims incurred, net of

reinsurance, and expenses for insurance reserves), on consolidated IFRS basis.